BERKELEY – In August, Europeans head for the beach.The continent shuts down on the assumption that nothing of consequence will happen until everyone returns, suitably tanned, in September. Never mind the subprime crisis of August 2007 or, closer to home, the European monetary crisis of August 1992: the August holiday is a venerable tradition. So, what should Europeans be reading beneath their sun umbrellas this year?

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Milton Friedman’s and Anna Schwartz’s A Monetary History of the United States belongs at the top of the list.At the center of their gripping narrative is a chapter on the Great Depression, anchored by an indictment of the US Federal Reserve Board for responding inadequately to the mounting crisis.

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Friedman and Schwartz are generally seen as reproving the Fed for failing to react swiftly to successive waves of bank failures, first in late 1930 and then again in 1931 and 1933. But a close reading reveals that the authors reserve their most scathing criticism for the Fed’s failure to initiate a concerted program of security purchases in the first half of 1930 in order to preventthose bank failures.

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That is a message that the European Central Bank’s board members could usefully take to heart, given their announcement on August 2 that they were ready to respond to events as they unfolded but were taking no action for now.Reading Friedman and Schwartz will remind them that it is better to head off a crisis than it is to rely on one’s ability to end it.

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A second recommendation is another account of the crisis of the 1930’s, Charles Kindleberger’s The World in Depression, 1929-1939.(If vacationing officials detect a pattern in their summer reading, all the better.) Kindleberger’s point is that avoiding a crisis – and when failing to avoid one, successfully exiting from it – requires leadership.

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Specifically, it requires leadership by a country with the power of the purse and the willingness to use it. The problem in the interwar period, as Kindleberger recounts it, was the reluctance of the leading power, the US, to provide the leadership and financial wherewithal to resolve the crisis.

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In Europe today, reunified and reinvigorated Germany is the only country capable of assuming this role. It could agree to swift bank recapitalization, a banking license for the European Stability Mechanism, and a more expansionary ECB policy. If Germany provided this kind of leadership, other countries would be quick to follow. Europe’s crisis would then be well along the path to resolution.

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Germans sunning themselves on Greek islands, one hopes, would be inspired by such reading.But it is hard to be confident.

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Of course, books by economics professors about the Great Depression hardly a summer holiday make.For variety, European leaders could take along Ron Chernow’s biography of Alexander Hamilton. Hamilton was a colorful character, born out of wedlock, raised in the West Indies, and captain of an artillery company in America’s revolutionary war. More to the point, as George Washington’s Treasury secretary, he crafted the bargain that successfully rationalized the US states’ debts.

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US states entered their new union with different debt loads and different capacities to service them.Hamilton made the case that the federal government should assume responsibility for their liabilities stemming from the costs of financing the war. He identified a source of revenue – the tariff – that could be devoted to this end, and he rendered the bargain politically palatable by making clear that if state governments accumulated additionaldebts, and again got into trouble, they would not be bailed out a second time.

European officials will argue that their problem is more difficult.Not only does Europe lack a federal government, but there is no desire to create one. A close reading of Hamilton’s accomplishments, however, will remind European readers that there was an equally deep aversion to federalism in the early US. It took politicians with vision and diplomatic skills to craft the political entity that emerged after independence.

Finally, European leaders should consider adding to their book bagBarbara Tuchman’s The Guns of August(again, notice the month).Tuchman describes how a series of individual decisions, all of whichseemed sound when considered in isolation, had the unintended consequence of leading Europe into World War I.

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No one is predicting war in Europe today.But what is true of international diplomacy – that a series of seemingly reasonable decisions can have cataclysmicconsequences if no one bothers to figure out the endgame – is equally true of international finance. Europe is dangerously close to its financial Sarajevo.

.The continent’s leaders, while relaxing on southern Europe’s crisis-ridden shores, should take Tuchman’s message to heart.

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Barry Eichengreen is Professor of Economics and Political Science at the University of California at Berkeley, and a former senior policy adviser at the International Monetary Fund. He is renowned for his examination of the world’s financial system at its most perilous turning points, from the breakdown of the gold standard in the 1930’s to the reconstruction of the world economy following World War II. His most recent book is Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System..Copyright Project Syndicate - www.project-syndicate.org

In the first of fourinstallments of a series on good governance, SPIEGEL explores how Brazil has becomeone of globalization's success stories.A rigorous battle against corruption and poverty has usheredin new freedoms, growth and increasing equality, winning the country respect around the world.

Western democracies consider themselves to be efficient, farsighted and just -- in other words, prime examples of "good governance."But in recent years, the euro and debt crises, along with wars in Iraq and Afghanistan, have shattered faith in the reliability of Western institutions. Disconcerted Europeans are casting a worried eye at newly industrialized nations like China and Brazil. Can the West learn something from countries that for so long sought its advice? In the first of a four-part series, SPIEGEL takes a look at how Brazil is governed today.

Bus driver Luiz Bezerra used to have just one thought on mind as he climbed the crumbling steps to Cantagalo every evening.It was this one thought that drove him on far more than the oppressive humidity or the sweat beading on his forehead: "How will my wife, our twodaughters and I survive the night?" Cantagalo, a slum clinging to a slope above the beaches of Rio de Janeiro, could only be considered picturesque if viewed from the safe distance of a tourist helicopter. It is poetic only in its name, which means "the crowing of the rooster."On every street corner of thisfavela, a Brazilian term for "slum," men stood around dealingdrugs and settling their differences with automatic weapons. Gangsters raped young women, mugged the elderly, controlled the neighborhood and stifled any form of public order with their violent excesses.

.These days, though, Bezerra has different concerns, ones that can be summed up neatly in two key phrases: "garbage collection" and "zip codes."Now his life revolves around small daydreams instead of nightmares. ."I'm sure all this isn't very exciting for you," says this man with graying hair.He's sitting in his workroom, where a dollhouse-sized model apartment with a miniature couch and built-in kitchen speaks to his ascent to the middle class. "It's notthat exciting for me either, actually. But, believe me, for the first time in a long time, we ordinary people are taking part in Brazil's boom and, for the first time, we're experiencing hope."

.The New Cantagalo

Bezerra, 67, now retired from his bus-driving job, was elected by the favela's residents to serve as head of the local citizens' association.Together with the city government and police, he is responsible for Cantagalo's approximately 20,000inhabitants.

.He sees to it that they collect their garbage, no longer simply burning it. He helps them to register their homes, most of which were constructed illegally, and provides them with house numbers that direct the letter carriers who now come by regularly. He warns his neighbors not to tap electricity illegally from the power lines but, rather, to pay for the regular municipal services, and he hears their complaints when something is stolen. Violent crime is now rare in Cantagalo..The "Unidade de Polícia Pacificadora," or "Police Pacification Unit," patrols here. This special unit used force to conquer Cantagalo, pushing out the powerful drug dealers and rounding up rifles and pistols. Now the unit's 24-hour presence in the favela provides for a tense sort of calm.

There's still a sense of mistrusthere among the narrow alleys, with their graffiti-covered walls.Many people disappear inside their doorways when they see the hulking men in uniform approaching, and only a few women offer a cautious greeting. These peacekeepers are respected, but not necessarily liked, and there's a sense that they're still on probation here.

.Too often in the past, corrupt government employees made deals with the gangsters. "The police looked away when the gangs massacred each other up here, and killed many of us, too, in the 'microwave.' That's what they callit when they burn their victims alive," says oneCantagalo resident, who asks to remain anonymous. The police, who work under Captain Renato Senna, are aware of this and try to defuse conflicts with as much restraint as possible. .Cantagalo is barely recognizable as its old self.New bars and stores have sprung up, offering everything from laundry detergent to condoms. People here also have more money to spend since the countrywide "Bolsa Família" program came into effect. Under this scheme, poor mothers receive a monthly benefit equivalent to between €10 and €60 ($12 and $74), depending on their income and number of children, and on carefully monitored conditions -- mothers must send their children to school and have them vaccinated regularly.

.Achieving the Rare Trifecta

.Can it be that Rio, the chaotic, samba-dancing city that was almost hopelessly crime-ridden and run-down a decade ago, a place tourists were warned to avoid, is now on its way to becoming a model for other cities? That the city's famed lasciviousness is giving way to an almost German-style sense of order -- here of all places, in the thongs-and-high-heels capital of the Brazilian Carnival?.These impressive changes are not just taking place in Rio de Janeiro, although they're being sped along by twomajor upcoming events, the 2014 World Cup for soccer and the 2016 Summer Olympics.Brazil was long considered a country with great potential -- but doomed forever to languish in that sense of possibility because the country's chaotic governments could never seem to get their act together.

.Now the entire country is on the rise, though. South America's largest nation is one of the so-called "BRIC" countries -- Brazil, Russia, India and China -- which are grouped together because they are considered growth regions with particular economic potential. And many believe Brazil is already on its way to becoming a global power..The country has a nearly balanced budget, little debt and almost full employment.It is in the process of overtaking France and the United Kingdom, and is poised to become one of the world's fivelargest economies. Despite being a newly industrialized country itself, Brazil gives development aid, and its dollar reserves of over $350 billion(€290 billion) make it one of the countries with the potential to help save the European Union. .Globalization expert Nicholas Lemann sums up the Brazilian miracle inThe New Yorker: "Among the world's major economic powers, Brazil has achieved a rare trifecta: high growth, political freedom, and falling inequality."That first factor stands in stark contrast to the United States and Europe, the second factor to China and the third to almost anywhere on the map. .Lemann's high praise for Brazil makes it seem that global leaderssearching for thesecret to good governance should make a pilgrimage to the Amazon. International organizations such as the World Bank, and politicians from US President Barack Obama to Chinese Prime Minister Wen Jiabao, are full of admiration as well..Becoming a Global Power

.How exactly did the administration accomplish this? How did it turn Brazil into one of the world's best-governed newly industrialized countries?Brazil is 22 times the size of Germany, and with 192 millionpeople, it also has more than twiceGermany's population.The country also carries weighty historical burdens. Brazilian society is far from homogeneous, the economy isn't well developed and the country doesn't have a tradition of democracy.In fact, for much of its history, Brazil has been treated as a pawn by foreign powers.The Portuguese conquerors were brutal in their treatment of the region's indigenous people. They also draggedmillions of slaves over from Africa and generally exploited Brazil however they saw fit from the 16th to late 19thcentury. In the 20th century, the country lurched from coup to coup, and for two decades, starting in 1964, it was ruled by a military dictatorship that Washington sometimes tolerated and sometimes actively supported.

By the early 1990s, Brazil's economy had hit rock bottom.Violent crime in the major cities had reached nightmarish levels, lumber-cutting mafias oversaw the ruthless exploitation of the rainforests, and while a few people grew outrageously rich, babies in the slums died of malnutrition. The government didn't provide even the most rudimentary services, and hyperinflation gobbled up more than pay raises could match.Such circumstances could have provided fertile ground for radicals, easily giving rise to a revolution.Yet the individual who stepped in to turn things around was a moderate social democrat, Fernando Henrique Cardoso, now81.

.In 1993, then-Finance Minister Cardoso brought together the country's brightest minds. He created a new currency, the modern real, restructured foreign credit and lifted tariff barriers. Some protected industries didn't survive these drastic changes, but the new approach brought a return in confidence, and consumption began to rise.Cardoso's approach to government applied tools that could have come straight from a handbook on good governance -- and in fact, the World Bank began publishing such a handbook in 1996, in the form of its "Worldwide Governance Indicators."Cardoso appointed technocrats rather than his own political followers. He opened up the country, creating international economicconnections, and was rewarded for his efforts when Brazil elected him president in 1994 and againfour yearslater..

'The Most Popular Politician on Earth'

Still, Cardoso failed to achieveone of the central aims of good governance: an equitable distribution of wealth.That effort was taken up by his successor, who became president in 2002: Luiz Inácio Lula da Silva, known to all as "Lula," leader of the left-wing Workers' Party. A former shoe shiner, metalworker and union leader, Lula was himself a member of Brazil's lower class.

.His first wife and their unborn child died because the family couldn't afford necessary medical care. In 2003, as president, he traveled first to meet the world's economic leaders in Davos, Switzerland, then a couple dayslater to participate in the World Social Forum, an alternativecounter-initiative held in Porto Alegre, Brazil. "At both gatherings," he later reflectedproudly, "I gave the same speech on hunger and how to combat it."Lula succeeded in easing the desperate situation of the underprivileged in his country with welfare programs such asFome Zero ("Zero Hunger"), which he implemented against the express advice of his own advisers, the World Bank and the International Monetary Fund. He was accused of "assistencialism," a form of poverty relief that's limited to handouts with little potential to make long-term change. Yet Lula was successful. More than 20 million people made the leap from lower to middle class under his watch, and the proportion of Brazilians living in absolute poverty decreased by 50 percent."Responsive government" is the name political scientists and sociologists use for a leadership style that acts more or less in anticipation of its electorate'squestions and concerns, integrating people across class lines and creating a shared sense of identity.For millions of Brazilians, Lula personified this principle simply through his own personal history, and they rewarded him with popularityratings and electoral results unique among Western countries. He won61 percent of the vote against his Social Democrat rival in 2006, and his approval rating was over80 percent when he left office in 2010. US President Barack Obama, who two years before was feted as if he were the Messiah for his feat of achieving53 percent of the vote in the American presidential election, called his Brazilian counterpart "the most popular politician on Earth." The country's voters would almost certainly have granted Lula a third term, and other politicians with his approval ratings might have been tempted. But Brazil's constitution stipulates a two-term limit, and the country's congress has blocked attempts to change that limit. Adhering to the dueprocess of law is another universal principle of good governance, but onethat not allnewly industrialized countries observe.

Willing to Experiment and Learn

.Lula's successor, former guerrilla fighter Dilma Rousseff, took office in 2011. In many ways, she is the charismatic Lula's polar opposite: sober, detail-oriented and extremely involved in her work. She made clear from the beginning that she expected thosearound her to take their work as seriously as she did, scheduling cabinet sessions on Friday afternoons and presentations at 7:30 a.m. on Mondays, and banning such phrases as "impossible" or "maybe tomorrow."Unlike Lula, now 66 and recovering from cancer, Rousseff was quick to root out the slightest hint of corruption, kicking outseven ministers within her first year in office. The new president devours the files that cross her desk and has an extraordinary memory for statistics. Asked by aNewsweek reporter whether she knew how manyjobs her government had created, Rousseff replied, "1,593,527 in the firstsix months."The strategies Rousseff is implementing are ones that have emerged at the forefront in the global debate over good governance: professionalizing political work, being willing to experiment and able to learn.

.What the current president learned from her experiences during the Lula years, during which she was energy minister and chief of staff, stands in stark contrast to the lessons others have taken away from globalization. Unlike the Republicans in the US or many European neoliberals, Rousseffbelieves in government involvement, active industrial policies and taxes that are applied intelligently and increased if necessary. Financial transactions are now subject to hefty fees, and a special tax assessed at 1.5 percent of each person's salary goes to support the country's arts scene. While arts budgets elsewhere are being cut, Brazil's unique model has yielded an annual increase of 10 percent in funding for theater, music and the visual arts.

Globalization's Major Success Story

Despite the government's ruthless intervention, regulation and taxation, Brazilian businesses have nothing to complain about.The country's major corporations have become some of the world's most important agricultural producers. No other company produces as much soy as the Amaggi Group, based in Rondonópolis in central Brazil. Ethanol giant Cosan in São Paulo has surpassed German producer Südzucker AG as the leader in that field. Belgian-Brazilian multinational Inbev is now the world's largest brewer of beer. And Brazil is making a name for itself in areas besides consumer goods, such as in the high-tech industry. Compressor manufacturer Embraco holds a 22 percentshare of the refrigeration market worldwide, and Embraer is the third largest-airplane manufacturer after Boeing and Airbus.South America's model nation is without a doubt one of globalization's major successstories, emerging from the global financial crisis of 2008 stronger than before. Still, long-termsustainability depends on factorsbeyond just those decided in Brazil's presidential palace..The Brazilian real is now considered one of the world's strongest currencies, which can be a nightmare, and not just for tourists."Lately, Brazilian investors who visit me at my London office have been saying they find even London cheap," says Jim O'Neill, whose 2001 paper on emerging industrial nations coined the term "BRIC." O'Neill is now chairman of Goldman Sachs Asset Management.Brazil is increasingly being flooded with cheap plastic goods, mostly from China, which choke out small, labor-intensive domestic industries. Three-quarters of all products sold at the Brazilian festival Carnival, for example, come from East Asia. The country is also flooded with speculation. Despite a series of interest ratereductions, most recently early this June, at 8.5 percent, Brazil's prime rate is still fartoo attractive to stave off an influx of unproductive foreign funds.The Brazilian government deliberately curbed growth last year out of fear that its economy might overheat, leaving Brazil trailing the rest of the BRIC countries with a growth rate of just3 percent.Now, though, the president is trying to fire up her country's boom once again.

.Gushing Oil

Oil, the same resource that proves more of a curse than a blessing for so many countries and often leads to "bad governance" -- to inequality, corruption and bloodshed -- may play a decisive role in setting Brazil's futurecourse.Brazil is a nation with many natural resources. The country has enormous rain forests, which are being illegally clear-cut by mafia groups not even Rousseff's administration has yet managed to control. Brazil also possesses more than half of South America's fertile farmland, as well as hydropower and minerals in abundance -- and large amounts of natural gas and crude oil. Just six years ago, additional oildeposits were found off the coast of southern Brazil, hidden deepbeneath the water300 kilometers (190 miles) offshore from Rio de Janeiro. These deposits are a challenge to access, but they have the potential to be enormously lucrative. Brazilian oil company Petrobras, in which the government owns a majority share, holds the monopoly on extracting that oil. With revenue over $120 billion, Petrobras is one of the world's largest companies -- and its best days are still ahead. Currently, Brazil exports only about 800,000 barrels of oil, barely a tenth what Saudi Arabia exports.Petrobras' research center looks like something built by extraterrestrials with environmental leanings. The building's white domes and glasshallways, which insulate from both heat and noise, are built to the latest environmental standards and use almost exclusively solar and wind power. "Fossil fuels are too valuable for something like this," says lead engineer José FagundesNetto from the company's observation deck at the university campus on the outskirts of Rio. Petrobras plans to put$225 billion -- "the world's biggest investment" -- into its offshore oil fields by 2015.Some of the deposits are located at depths of more than5,000 meters (16,000 feet), with the last2,000 meters (6,500 feet) to the coveted resource consisting of a salt crust. The technical challenges are enormous, but Petrobras' engineers believe they can overcome them. "We're at the forefront globally when it comes to deep-sea drilling," Netto declares confidently. Yet Brazil, too, struggled with a deep-sea leak this January, temporarily halting operations at Carioca, its fifth largest oil field.

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Petrobras plans to be extracting from all its deep-sea locations by 2017. A few years after that, if all goes well and no accidents occur, the Brazilian corporation could be No. 1 globally in terms of stock market value and production. A new refinery is currently being built, while others are planned. That will make it possible to export not only rawmaterials, but refined products as well. This act of farsightednessdistinguishes Brazil from oil-richcountries, such as Iran, Iraq or Venezuela, that have beenextracting oil for decades, yet sometimes end up having to import gasoline and diesel..

Avoiding the 'Dutch Disease'

Just how important Petrobras is to the country's president can be seen in Rousseff's choice for the company's new CEO: Maria das Graças Foster, 58, who is both a widely recognized energy expert, and yet another one of Brazil's breathtaking success stories.Foster comes from Rio's favelas and worked her way through college, raising a daughter at the same time. With hard work, in the space of 30 years she climbed the career ladder from intern, to oil platform technician, to overseeing the company's natural gas division. In addition to being an expert on fossil fuels and company management, Foster knows a great deal about soccer and is a fan of Botafogo, a team in Brazil's top league. But she has no patience for employees who lag behind. When that happens, just like her friend the president, Foster can become quite unpleasant.Onemajor challenge for Brazil is how to avoid the "Dutch disease" -- an economic term that refers to a decrease in the competitiveness of a country's manufacturing sector as its exploitation of natural resources increases.It also wants to prevent the cronyism that tends to plague oil-extracting nations and, instead, ensure that the people get a fair share of the profit obtained from the country's natural resources.

.So far, Norway has provided the best solution to this problem, through a sovereign wealth fund that funnels a portion of the country's oil profits into investments.Petrobras holds upNorway's example as its stated ideal. Still, balancing the specifications of the government, which holds a majority share in Petrobras, with the interests of the minority shareholders is likely to prove considerably more difficult in the newly industrialized country of Brazil than it is in a well-established Scandinavian democracy.

.No Barbecuing on the Copacabana

Back in Rio, at the edge of the city center and just a stone's throw away from the black high-rise of the city's government, is a boxy new building with glass walls. If the building's exteriorappears futuristic, the interior looks even more like a mission control center in a "Star Wars" film..Nearly a quarter of all Cariocas, as Rio's6 millioninhabitantscall themselves, live in slums, and only a small number of these favelas have been pacified like Cantagalo. Many favelas are alsoat risk of landslides when the region's torrential rains begin each year. All these factors contributed to the city's decision in 2010 to establish a new command center.Here, men in white jumpsuits keep track of an enormous wall of monitors displaying a constant stream of new data amounting to a virtual Rio in real time.From all over the city, 560cameras relay high-resolution images of intersections, subway stations, public squares and beaches. A weather satellitefeeds incurrent data on storm developments. Sirens installed in 66 favelas with particularly critical hillside locations provide timely warnings of danger, and 400employees available around the clock recordcrimes and accidents, fires and blackouts, immediately passing that data on to police, firefighters and ambulances. Soon, the control center plans to make its information available to everyone online,providingwarnings about which areas of the city to avoid at any particular moment.

.American computer multinational IBM created this center, at a cost of €11 million, and hopes other major cities will order similar facilities if Rio's system proves effective.

.But the idea didn't originate with the North American company. Rio's mayor, Eduardo Paes, 42, conveyed his precise desires to the computer giant. Today, he says proudly: "My vision is of a city with less inequality. We may still be missing a few of the aspects we need to achieve that, but we're on the right path. We want to make Rio a model for other cities around the world.".

.Paes governs Rio de Janeiro the way Dilma Rousseff governs the country -- with an almost German strictness. Barbecuing is forbidden in the famous Copacabana neighborhood, for example, and no soccer is played before5 p.m. But Paes recognizes that it won't necessarily be possible to enforce these policies at all times and under all circumstances. "We don't want our city to become like Lausanne or Zurich," he says reassuringly.Certainly the exuberant, chaotic nights in the city's favelas offer little cause to worry that this particular danger will come to pass any time soon.The Germanization of Brazil hasn't yetgone that far.

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.